Understanding How to Stake on Tezos (XTZ) with the Paris Protocol Upgrade

Tezos
(XTZ)
has
introduced
a
revamped
staking
experience
with
the
Paris
protocol
upgrade,
offering
new
opportunities
for
participants
to
secure
the
network
and
earn
rewards.
This
comprehensive
guide
explains
how
to
stake
on
Tezos,
different
staking
scenarios,
and
their
implications,
according
to

Tezos
Spotlight.

Staking
and
Baking:
An
Overview

Staking
on
Tezos
involves
choosing
a
baker
and
letting
your
funds
contribute
to
that
baker’s
stake.
These
funds
remain
in
your
account
but
are
frozen
and
subject
to
economic
penalties,
known
as
slashing,
if
the
baker
misbehaves.
Baking,
on
the
other
hand,
involves
running
a
machine
that
participates
in
securing
the
network,
producing
blocks,
maintaining
consensus,
and
voting
on
governance
issues.
Bakers
receive
rewards
proportional
to
their
stake
for
their
work
and
the
associated
risks.

Delegation
vs.
Direct
Staking

Delegation
allows
users
to
contribute
to
a
baker’s
stake
without
freezing
their
funds.
However,
delegated
funds
carry
only
half
the
weight
for
receiving
baking
rights
and
rewards
compared
to
directly
staked
funds.
Additionally,
rewards
from
delegated
funds
are
paid
to
the
baker,
who
may
or
may
not
redistribute
them
to
the
delegators.

Becoming
a
Staker

To
start
staking,
users
must
delegate
their
account
to
a
chosen
baker
using
the
‘set
delegate’
command
in
Octez
or
via
their
wallet’s
interface.
After
delegating,
users
can
add
stake
with
the
‘stake’
command.
Removing
stake
involves
the
‘unstake’
command,
and
changing
bakers
automatically
unstakes
all
funds,
which
remain
frozen
for
about
11
days
before
they
can
be
finalized
and
restaked.

Understanding
Rewards

Staking
rewards
are
paid
to
the
staker’s
account
and
automatically
become
part
of
their
stake.
The
rewards
rate,
which
can
fluctuate
between
0.25%
and
10%
annually,
is
determined
by
the
Adaptive
Issuance
mechanism.
This
mechanism
adjusts
the
rewards
rate
based
on
the
share
of
tez
staked,
aiming
for
a
target
of
about
50%
of
the
total
supply.

Managing
Overstaking

Overstaking
occurs
when
the
total
stake
exceeds
a
baker’s
limit,
resulting
in
reduced
rewards
for
all
stakers.
Bakers
can
accept
up
to
five
times
their
own
stake
from
external
stakers,
but
any
amount
beyond
this
limit
is
treated
as
delegated
and
generates
only
half
the
rewards.
It’s
crucial
for
stakers
to
monitor
their
baker’s
capacity
and
ensure
they
are
not
contributing
to
overstaking.

Practical
Scenarios

Consider
a
baker
named
Brian
who
stakes
4,000
tez
and
sets
a
limit
of
20,000
tez
for
external
stake.
If
two
stakers,
Susan
and
Simon,
each
stake
10,000
tez,
Brian
reaches
his
limit.
However,
if
a
third
staker,
Sarah,
adds
another
10,000
tez,
Brian
becomes
50%
overstaked.
This
scenario
illustrates
the
importance
of
monitoring
staking
limits
to
avoid
reduced
rewards.

Ensuring
Optimal
Staking

To
optimize
rewards
and
maintain
network
health,
stakers
should
regularly
check
their
baker’s
capacity,
limits,
and
policies.
Any
changes
in
the
baker’s
stake
can
affect
the
overall
staking
scenario,
so
continuous
monitoring
is
essential.

For
further
information
and
community
support,
users
can
visit
the
Tezos
Agora
forum.
Happy
staking!

Image
source:
Shutterstock